Leaders at the regulator have concluded that a much-hyped “compliance assistance sandbox” and related programs were ineffective.
Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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CFPB (Office of Competition and Innovation) is Shifting Policies that Provide Special Regulatory Treatment for Individual Firms
Protocol | Ryan Deffenbaugh | Jun 2, 2022
Leaders at the regulator have concluded that a much-hyped “compliance assistance sandbox” and related programs were ineffective.
In unveiling a recent restructuring of the agency's innovation office, CFPB Director Rohit Chopra said regulators were shifting away from policies that place "special regulatory treatment on individual companies." The sandbox initiative, led by the former Office of Innovation, tried to make it easier to bring new products to market, but was unpopular with consumer groups.
See: BIS Report: Inside the Regulatory Sandbox: Effects on Fintech Funding
The CFPB's newly named Office of Competition and Innovation will focus on creating:
Market conditions where consumers have choices, the best products win and large incumbents cannot stifle competition by exploiting their network effects or market power.
As part of the restructuring, the CFPB said it reviewed the sandbox and no-action letter programs and found they "proved to be ineffective" and that some firms used the programs to indicate the bureau "conferred benefits upon them that the bureau expressly did not."
Despite declaring the program ineffective, a CFPB spokesperson said the agency "is still processing no-action letter and sandbox applications at this time."
While the announcement did not say that the sandbox program will be shut down entirely, the CFPB's emphasis is now on rule-making petitions for companies that seek regulatory clarity on a product. That would allow for greater protections, as any rules would apply to the industry as a whole and be harder to revoke. But, as one legal analysis noted, there has been just one granted rule-making petition in the CFPB's nearly 11-year history.
See: Fintech Innovation: Sandboxes as a Tool (Presentation by Randee Pavalow)
Michael Gordon, an attorney with Ballard Spahr and former top CFPB official under the Obama administration:
The CFPB is sending clear signals that the growth of the fintech industry has resulted in increased risks to consumers. While many fintech innovations are indeed consumer-friendly, I expect the CFPB to ramp up its scrutiny and take action against firms that fall short of their obligations.
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